Selecting Advisory Services for Buying a Pharmacy Business
How do advisors support a successful process from start-up through growth and in transitions?In this video, Ollin Sykes, CPA, discusses the role that pharmacy specific advisors play in your pharmacy purchase. Learn why you need a team working with you towards a closing transaction that provides a successful transition of owning a pharmacy.
Learn more about how a specialized industry advisor can provide the guidance you need when buying a pharmacy.
If you prefer to read this content, the video transcript is below.
Well, once you have made a decision that you are going to purchase a pharmacy, typically as an existing pharmacy that’s in place, boy do you ever need a set of advisors that have experience in this particular space. First and foremost, that is going to be an accounting/financial/tax expert that has extensive experience in dealing with pharmacies, existing pharmacies that can assist you with the due diligence phase of what needs to be looked at.
Very often, I will get a call that a broker has presented an opportunity to a pharmacist and they are providing tax returns and financial statements. I’m very quickly to tell them that that information, don’t trust any of it. That may sound a little bit weird on the surface. But we’ve had so much experience in dealing with this type of thing. And what we have seen is that if we don’t drill down on the accounting file, typically it’s QuickBooks let’s say, if we don’t drill down in that accounting QuickBooks file and see what’s happened over the last two, three, four years in that pharmacy and compare that back to the actual tax returns and/or any external reports that are provided, that very often we see gaping holes. I mean gaping holes between the accounting data and what’s been presented from perhaps a broker, keeping in mind that a broker is trying to generate a commission which is 10% paid typically by the seller.
So, we already know that the selling price has been jacked up for the commission that’s involved in the process and you as a buyer don’t want to get caught in that trap of overpaying for a particular pharmacy that doesn’t have numbers to support the asking price. So, you’ve got to have that team, first and foremost at a financial, accounting, tax experience, focus person, who can drill down, help you determine the evaluation of that pharmacy, again not based off tax returns, not based on financial statements, but based solely on the historical data that’s available for that pharmacy, including expensing data and other information that’s looked at.
And so once that can be determined that the information is valid and appropriate, what we refer to as a recasted EBITDA can be determined to see what kind of available cash flow is gonna be available to you to repay debt. Once we know that that number is in an approximate range of what you’re looking to potentially pay for that pharmacy, or in an approximate range of what’s being asked for by the seller, then we can involve a legal healthcare specialist to put together perhaps a letter of intent to let us further complete the due diligence while you get together your financing, again dealing with your pharmacy financing experts, while you’re working with your accounting financial tax advisors to assist in that arrangement.
So you got a team here that’s working with you to work towards a closing transaction that provides to you a successful transition, where you’re not overpaying for the pharmacy that you’re looking at and that you have the financial well-being of that existing pharmacy to support the debt structure that you’ll have going forward. So, again, this is the initial stages that’s so critical to making sure that you, when you’re making the most important financial decision you probably have ever made, are not overstepping your bounds, overpaying for the pharmacy, and have all your ducks lined up as you move towards the closing. So, that’s the process we suggest that you very seriously consider.